In Piedmont Office Realty Trust, Inc. v. XL Specialty Insurance Co., 2015 WL 1773620 (Ga. Apr. 20, 2015), XL had provided Piedmont an excess policy with limits of $10 million excess of $10 million. The policy provided that XL will only pay for a “loss” that the policyholder became “legally obligated to pay.” The policy required the insurer’s consent to settle a claim, although it stated that the insurer would not unreasonably withhold consent. Further, the policy contained a provision prohibiting actions against XL unless, as a condition precedent, Piedmont fully complied with the terms of the policy.
Piedmont was sued in a securities class action lawsuit. Through the defense costs it incurred, Piedmont exhausted its primary policy and $4 million of its excess policy. Piedmont sought XL’s consent to settle the claim for the remaining $6 million limit. XL refused and agreed to contribute only $1 million. Piedmont settled the suit without XL’s consent for $4.9 million and then demanded coverage for the full settlement amount. XL refused, and Piedmont brought suit against XL for breach of contract and bad faith. The district court dismissed Piedmont’s complaint. The Eleventh Circuit Court of Appeals then certified three questions to the Supreme Court of Georgia, which were in essence:
- Is Piedmont “legally obligated to pay” the $4.9 million;
- Can a court determine, as a matter of law, that a policyholder who seeks (but fails) to obtain the insurer’s consent before settling is flatly barred from bringing suit for breach of contract or for bad-faith failure to settle; and
- Under Georgia law, was Piedmont’s complaint dismissed properly.
The Supreme Court of Georgia held that in light of the unambiguous policy provisions and settled Georgia case law, Trinity Outdoor, LLC v. Central Mutual Insurance Co., 285 Ga. 583, 679 S.E.2d 10 (2009), Piedmont could not pursue an action against XL because XL did not consent to the settlement and Piedmont failed to comply with all policy provisions. The Supreme Court reasoned that even though Trinity did not contain an express provision prohibiting the insurer from unreasonably withholding its consent to settle, the policy there impliedly prohibited the insurer from such conduct. And, the Supreme Court still held there that the insured could not settle the underlying lawsuit without the insurer’s consent and, in turn, sue the insurer for refusing to settle in bad faith. Notably, the Supreme Court found unpersuasive that the settlement agreement between Piedmont and the underlying plaintiffs was approved by the district court.